Texas Jewelry Chain Sanctioned by SEC

           DALLAS (CN) – Dallas Gold & Silver Exchange and its former CFO settled SEC claims that they overstated inventory by as much as 227.4 percent in public filings.
     The SEC sued DGSE Companies Inc., a jewelry, diamonds, precious metals and collectibles broker, and I. John Benson in Federal Court.
     Under terms of the settlement announced hours later by the SEC, Benson will pay $75,000 in civil penalties and is permanently banned from serving as an officer or director of a public company. He also is suspended from practicing as an accountant for any publicly traded company or other entity regulated by the SEC.
     The SEC claims Benson made “repeated false accounting entries” that made it look like the company owned inventory that still belonged to customers under consignment.
     It claims that Benson made several fraudulent accounting entries to bring DGSE’s general ledger back into balance due to accounting system failures that did not properly record intercompany transactions, such as inventory transfers between stores.
     The company’s own internal investigation showed a lack of “sufficient controls to adequately maintain and reconcile” accounts, that the accounting systems were “antiquated,” and that the accounting department was not sufficiently staffed, the SEC said in a statement.
     “As a result of the improper adjusting entries and the manipulated inventory listings which Benson caused to be provided to DGSE’s external auditor, DGSE’s publicly reported financial information contained a number of misstatements – including the large overstatements of DGSE’s inventory,” the 12-page complaint states. “Benson knowingly signed the misleading public filings – including DGSE’s Forms 10-K for the fiscal years ended December 31, 2009 and December 31, 2010, as well as quarterly filings for the same period.”
     The SEC claims DGSE lacked sufficient written policies, proper system security, data backups and failed to follow accounting best practices.
     “Benson took advantage of DGSE’s deficient controls by employing improper accounting entries to fill the ‘hole’ in the intercompany accounts,” the complaint states.
     “DGSE regularly booked entries directly into the general ledger rather than into its subsystems, many of which were not properly documented. As a result, DGSE did not have an audit trail that would enable it to confirm the accuracy of its reported financial information.”
     The company has removed all members of the management team, hired new independent auditors and hired a consulting firm to find errors in the electronic accounting system to fix the inventory discrepancies and balance the general ledger, the SEC said.
     Dusty Clem, DGSE chief executive officer, told Courthouse News on Wednesday the company is glad to have ended the suit and “is now focused solely on growing our business.”
     Under the settlement, DGSE and Benson consent to injunctions against further violations of federal securities laws. DGSE further agrees the appointment of an independent consultant to review its accounting controls.

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